A bingo operator has won an important court case with HMRC resulting in a £40m VAT refund for itself and several other firms.
The issue arose after HMRC changed the way VAT should calculated for bingo sessions. In the past, bingo operators charged customers a fixed fee that entitled them to play several games of bingo.
The session fee had two components: the participation fee, which the operator was entitled to keep for itself and on which VAT was payable; and the stake, which funded the winnings and was not subject to VAT.
In line with HMRC’s guidance, KE Entertainment calculated its liability to VAT on a game-by-game basis. However, in 2007 HMRC changed its guidance and instructed operators to calculate VAT on a session basis instead.
This was more favourable to the operators as it resulted in the stake element comprising a higher proportion of the session fee.
HMRC invited operators to make claims for repayment of any resulting over-declarations that had been made on the game-by-game basis. KE made successful claims but was restricted by the four-year time limit on such claims as to how far back it could go.
It took legal action and the First Tier Tax Tribunal ruled in its favour, saying the time bar should not apply. HMRC appealed but the Upper Tribunal upheld the ruling.
The decision is important because it was the lead case being followed by claims by 14 other firms, who are now due a VAT refund totalling £40m.
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